BXP, Inc.BXP boasts a portfolio of Class A office assets in a few select markets of the United States. The healthy tenant demand for premier office assets and the company's ability to offer such spaces are likely to drive decent leasing activity. A healthy balance sheet and strategic capital allocation bodes well for future growth. However, the elevated supply of office properties in some markets is likely to fuel competition.
Analysts seem bullish on this office REIT carrying a Zacks Rank #3 (Hold), with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being raised marginally northward over the past two months to $7.10.
Over the past three months, shares of the company have rallied 32.4%, outperforming the industry's 16.2% growth.
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What’s Aiding BXP?
BXP is well-poised to gain from the continuing rise in demand for top-quality office spaces by technology and life science businesses, resulting in solid leasing activity. Amid strong demand from life-science tenants, the company is converting numerous straight office buildings to laboratory/life science spaces in its suburban portfolio. In the second quarter of 2024, the company executed 73 leases totaling around 1.3 million square feet with a weighted average lease term of nine years. We estimate lease revenues to witness a year-over-year increase of 3.5% in 2024.
BXP is boosting its portfolio quality through repositioning initiatives by acquisitions and the development of properties in core markets and shedding in non-core markets. From the beginning of 2010 through the end of the second quarter of 2024, BXP carried out acquisitions worth $9.5 billion. It also disposed of properties for an aggregate amount of $8.2 billion during this period.
As of the end of the second quarter of 2024, the company has a planned capital expenditure associated with the acquisition for the amount of $6.8 million. Such moves highlight the company’s prudent capital management practices and relieve the pressure on its balance sheet.
BXP has an encouraging development and redevelopment pipeline, which bodes well for its long-term growth. From the beginning of 2010 through the end of the second quarter of 2024, BXP delivered development projects totaling $9.5 billion. The company projects the properties under development and redevelopment through 2026 to add around $167 million to the company’s share of net operating income (NOI) cash upon stabilization. It also projects a 3.6% compound annual growth rate (CAGR) from development projects through 2026.
BXP has a healthy balance sheet position with ample liquidity. As of June 30, 2024, the company had $2.3 billion of liquidity. The company’s share of net debt to EBITDAre (annualized) was 7.91X, while the fixed charge coverage ratio was 2.69 times as of the same date. BXP also enjoys unsecured senior debt ratings of BBB from S&P Global Ratings and Baa2 from Moody’s, rendering it favorable access to the debt market.
What’s Hurting BXP?
The rising supply of office properties in some markets where the company operates remains a concern. There is competition from developers, owners and operators of office properties and other commercial real estate, affecting its ability to retain tenants at relatively higher rents and curbing its pricing power.
Given this backdrop, it will be challenging for the company to backfill tenant move-outs and vacancies in the near term. For 2024, management expects average in-service portfolio occupancy to range from 87% to 88.2%. We expect the company to maintain an occupancy rate of 87.6% in 2024.
BXP has 10 properties under its development and redevelopment pipeline, with its share of estimated total investment aggregating around $2.3 billion as of June 30, 2024. Although a huge development pipeline is encouraging for long-term growth, it exposes the company to the risk of rising construction costs and lease-up concerns.
Stocks to Consider
Some better-ranked stocks to consider from the broader REIT sector are Crown Castle Inc. CCI and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has been raised marginally over the past three months to $6.97.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past two months to $8.09.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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